CUSOs Seek Operational Calm

As the birth of a new corporate credit union model emerges, the CUSOs owned by the three corporates that were recently placed under the NCUA's regulatory purview are reassuring their clients that service will remain in place for at least the next few years.

Constitution Corporate FCU, Members United Corporate FCU, and Southwest Corporate FCU were placed in conservatorship Sept. 24 by the NCUA. All were deemed undercapitalized, the agency said. The move makes way for the regulator's final corporate credit union rule.

Meanwhile, it is business as usual for the corporates' CUSOs, said John McKechnie, NCUA director of public and congressional affairs.

"Those CUSOs continue to be open for business and their customers will experience no interruptions in service due to [Sept. 24's] action," McKechnie said.

Members United in Warrenville, Ill., wholly owns Balance Sheet Solutions LLC, a broker-dealer and investment adviser. It assured its CU clients that services are intact and operational. The CUSO pointed out that Members United contributed $850,000 to start and maintain the firm during its early years. The CUSO has since been able to multiply that original investment by more than 14 times, wrote its president, James Tolliver, on the subsidiary's website.

"Balance Sheet Solutions has enjoyed tremendous success over the past several years and we are well positioned in our marketplace," said Tolliver. "We have, and expect to continue to have, a solid and thriving business and will continue to move forward while meeting the needs of the credit union industry."

Tolliver said marketable security transactions, SimpliCD, reporting and investment advisory services will continue uninterrupted. He continued to encourage all the CUSO's customers to perform due diligence on all financial partners.

"With the recent turn of events, it is important to refresh your reports and we are very proud to share our strong financial position as it translates into a sound and financially stable business partner," Tolliver advised, providing a FINRA broker check link for those wanting information on the CUSO and staff. He also provided a link to Balance Sheet's Dec. 31, 2009 audit report, the latest one on record.

Larry Middleman, president/CEO of CU Business Group LLC, said he spoke with NCUA officials the Monday morning after the conservatorship of two of the CUSO's eight corporate owners, Members United and Southwest Corporate. According to its website, the Portland-based business lending and deposit services CUSO received initial capital contributions for corporates to start CUBG. It has since become a financially independent and self-supported organization serving more than 340 CUs in 40 states.

"It's business as usual. We've been in close touch with the corporates. Our board is intact. [The NCUA] gave us every indication there will be no change in operation," Middleman said.

SmartSource Solutions LLC is a wholly owned Web services CUSO of Constitution Corporate in Wallingford, Conn. Its website's home page has links to sections on the conservatorship. SmartSource also has partnerships with eight other corporates.

"Constitution's operations will continue uninterrupted. However, NCUA has determined that Constitution will not continue as a going concern, and we are pursuing a strategy to transfer operations to an existing corporate credit union. We believe this will minimize the impact to your institution. We must emphasize that it is critical to maintain deposits at Constitution during this transitionary period in order to facilitate a seamless transfer of your item processing services," SmartSource wrote on its website.

Meanwhile, the Plano, Texas-based Southwest Corporate, a co-owner of CUBG, said "several alternatives will be evaluated to identify the best alternative to transition operational services."

"Members could also form a CUSO, pursuant to new regulatory requirements, to purchase the operations in tandem with another financial institution for settlement purposes, or an existing corporate credit union could submit a proposal to NCUA to purchase and assume the assets and operations of the bridge corporate," wrote Dianne Addington, acting CEO of Southwest Corporate, on the CU's website.

Southwest Corporate also has an investment in Credit Union 24 Inc., CU Source LLC (Southwest Corporate Investment Services), Primary Financial Co. and CU Cooperatives Services Inc., according to the NCUA. The agency said Southwest Corporate has divested but is not released from ownership of Credit Union 24.

At its last meeting, the NCUA board voted to shift corporate CU CUSO authority to the director of the Office of Corporate Credit Unions. The board may have the authority to approve or disapprove a CUSO's activities if they go beyond the scope of those listed in section 712.5 of NCUA regulations, the agency said. While the bulk of the final corporate rules will become effective 90 days after they are published in the Federal Register, rules that impact CUSO activities will have delayed effective dates, according to the NCUA.